Tax credit lawsuit appealed to Supreme Court

  • A rig explores for oil at Smith Bay on Alaska's North Slope ifor Caelus Energy n this 2014 courtesy photo. Caelus was among many small explorers who participated in the state's former tax credit program that paid a cash share of costs for qualifying work. A judge upheld a bill to pay off those credits by selling subject-to-appropriation bonds as constitutional in a decision issued Jan. 2. An appeal to the Supreme Court was filed Feb. 21. (Photo/Courtesy/Caelus Energy)

The State of Alaska’s plan to pay off more than $800 million in oil industry tax credits by selling bonds is on its way to a final judgment.

An attorney for former University of Alaska regent Eric Forrer, who sued the state challenging the constitutionality of the bond plan last May, appealed the case to the Alaska Supreme Court Feb. 21.

Superior Court Judge Jude Pate dismissed Forrer’s lawsuit Jan. 2 in a lengthy and long-awaited ruling.

Forrer’s lawyer, longtime Juneau attorney Joe Geldhof, contends Pate not only misconstrued the Alaska Constitution three times in his ruling, but also that Pate, a fairly new trial court judge, misapplied procedural court standards in granting the state’s motion to dismiss.

Geldhof noted during the court proceedings that state attorneys never responded to Forrer’s initial complaint and instead filed a detailed motion to dismiss the case that Pate then treated as a motion for summary judgment.

Pate concluded in his ruling that Forrer failed to state a claim upon which the court could grant relief on the grounds that House Bill 331 “passes constitutional muster.”

Forrer alleges the plan to sell the “tax credit bonds” falls outside the tight sideboards the Alaska Constitution puts on the state’s ability to incur debt.

He also argued in interviews and through court filings that the plan amounts to a de-facto dedication of General Fund money to pay the bond debt because not making the payments would have grave consequences on the state’s credit rating and future finances.

The state Constitution generally limits the Legislature from bonding for debt to general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies.

In most cases the voters must approve the GO bond proposals before the bonds are sold.

State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole.

The tax credit bond plan would have the Department of Revenue set up the Alaska Tax Credit Certificate Bond Corp. specifically for the purpose of issuing the 10-year bonds.

State attorneys contended the plan is legal because the bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments.

Department of Law spokeswoman Cori Mills wrote via email that the state stands by Pate’s ruling but has not yet received a notice of appeal in the case; and attorneys handling the case have not decided whether the state will request expedited consideration.

The five-justice Supreme Court could remand the case back to Superior Court if it concludes Pate misapplied the procedural standards or it could acknowledge the alleged missteps but chose to focus on the constitutional arguments.

Geldhof stresses that Forrer is most concerned that a ruling in the state’s favor will give local governments in the state — often with less public oversight than state officials — a green light to borrow irresponsibly, particularly in a time when state funding support is dwindling.

The lawsuit has prevented the state from selling the first tranche of bonds, which was initially planned for last August.

Gov. Michael J. Dunleavy proposed $254 million for tax credit payments with Alaska Industrial Development and Export Authority funds in his budget released Feb. 13 as it is unlikely the suit will be resolved before the 2020 state fiscal year begins July 1.

Elwood Brehmer can be reached at [email protected].

Updated: 
02/27/2019 - 11:22am

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